WATCH PRICES: to raise or lower prices?

WATCH PRICES: to raise or lower prices?

the face of all this uncertainty, the ongoing
paradigm shift, the burden of excess stock and
industrial overproduction, what strategies are open
to the brands? And the sixty-four-thousand-dollar
question: should prices be raised or lowered?
Every brand has or will have its own response, some
better suited than others to the realities of a market in
motion. And the responses vary depending on where
the brands are situated on the social hierarchy scale.

Here is one possible response,
which Jean-Christophe Babin, CEO of Bulgari,
recently gave to questions by Europa Star:

“In watchmaking, volume and value form two opposing
pyramids. The majority of the volume is situated
below the 2,000-euro mark. And most of the value is
situated above the 5,000-euro mark.
The response to the crisis is not
necessarily lower prices. In a crisis
like today’s, scrambling below the
5,000-euro mark is a human reflex,
because we associate crisis with a
lack of money, but it’s not necessarily
the right reflex, or the right
solution. We’re forgetting that 90%
of the value is in the segment above
5,000 euros and that, in the 10% below
that, there are already highly
competent players with iconic models
and very confident retailers in those brands.

And what you also have to take into account is that
below and above 5,000 euros, there is a general decline
in sales across the industry as a whole. It isn’t
as if all of a sudden people who bought watches at
25,000 euros are now going to buy watches at 2,000
euros: that’s totally wrong.

So, are we going to sell 15% more by positioning ourselves
10% lower? Personally, I’m rather sceptical. I think
that more than ever, the products we offer should have
substance that is not only perceived, but real.

Why lower prices when you can be more attractive by
setting the right price for new products? Thanks to our
retail network, we can exactly measure the behaviour
of our customers, and no one came to buy a 3,000-franc
watch when they’d bought a watch for 30,000 francs before. But from 30,000 francs to 20,000, yes. A Tesla in
relation to a Mercedes – that’s a good response and an
avenue to explore for the watch industry.”

Another price strategy and another response is that currently
being implemented by Jérôme Lambert with Montblanc.
He made a splash – and raised a storm of criticism accusing
him of wanting to kill off the market – when he was CEO
of Jaeger-LeCoultre, for having produced a tourbillon for
around CHF 40,000. He did it again at Montblanc, producing
a perpetual calendar selling at 10,000 euros.

“Offering competitive prices in relation to perceived
value has been the constant strategy of
Jérôme Lambert at Montblanc for the past three
years. We achieve our greatest sales volumes in the
1,000 to 5,000 franc segment, in particular with
sport chronographs. Thanks to this consistent position,
we are not being forced to go down market today.
Three years ago, when market conditions were
excellent, you really needed vision to impose this
constraint of accessible prices. We want to be viable
in the long term. If we started lowering our prices
now, neither our brand nor our partners would be
able to do business. Montblanc’s objective was to
set the right price, not to cut prices, as we’re sometimes
accused of doing.”

Lower prices? Cut-throat prices, even?
That is the strategy chosen by Ebel CEO
Flavio Pellegrini to put back on track a brand
that used to be in the spotlight before more or
less disappearing off the radar.

“The industry has been too greedy these past few
years in terms of profit margins, going for in-house
production and vertical distribution with their
own sales outlets. Certain brands have two years’
worth of inventory and components upstream, and
two years’ worth of watches in their own boutiques
downstream. It will take at least two years to be reabsorbed.
But you have to remember that the quartz
crisis was an existential crisis far more dramatic than
today’s. We’re going to have to give it time.

Our battle-horse and our anti-crisis remedy? To maintain
brand quality, but with aggressive pricing. For
example, our gold and steel Wave model with a diamond-
set bezel and a mother-of-pearl and diamond
dial used to be priced at CHF 5,900. Our engineers
have found smarter ways of lowering prices, and
we’ve also revised the architecture of the timepiece,

The message from the independent watchmakers
is quite different:

With a track record of nearly 30 years in
the watchmaking business, François-Paul Journe
has no intention of changing policy and puts the
ball back in the court of the large groups.

“While today it’s easy to find prestige watches sold
with a 40-50% price reduction, you will never find one
of my watches at a discount price. It took me more
than 20 years to build my image, and I’m not going to
destroy it at the first gust of wind. In my view, the current
crisis is largely due to the blindness and greed
of a large number of major watchmaking companies.

Today, they’re paying for their recent excesses.
But when you are a young brand and have not yet finished
building your image, the “price war” that has
sprung up on several fronts forces you to find a response.
And to engage in pitched combat on prices,
while communicating about quality.”

“Today, price is the key. The brand used to be the gateway
to the watch. Today, increasingly, price is the primary
criterion. For several years now, watch-pricing
policies have become completely disproportionate
in relation to the customers.

We are a spin-off of Panerai, but our prices range from
1,900 to 4,900 francs. We’re going for a more aggressive
price policy by launching a new line at the next
edition of Baselworld, with a target price of CHF 1,500.
It’s the only solution for a little-known brand like us
– to showcase an attractive price for a genuine, Swissmade
product. My aim is to thumb my nose at the
brands offering similar products to ours at excessive
prices. But the toughest thing for a relatively new
brand is to stay the course. Tradition is reassuring.
Many watchmaking start-ups are in danger of vanishing
in the period we’re currently going through.”

The virtue of stability… No previous price
hikes means no hard decisions about lowering
(or further raising) prices now, and there is market
share to be won, points out Xavier Gauderlot,
Movado Group’s President for Europe.

“One characteristic of our brand is that, contrary to
the inflation we have seen in luxury watchmaking,
we haven’t raised our prices since 2009. We gained
market share in 2016, particularly in the United
States, our main market, where we have continued
to grow despite a shrinking context. We go into this
crisis in a better position than we were in 2008, with
more tightly controlled distribution.”

For Sascha Moeri, CEO of Carl F. Bucherer,
a judicious strategy of price diversification
has helped his company to increase its market
share in a tense climate.

“In 2016, we sold more watches in the 3,000–5,000
franc segment than in the 6,000–8,000 bracket.
The average sales price has dropped. Because of our
broad price range, which goes from 3,000 to 400,000
francs, we have flexibility, and that has helped us to
gain market share. Every client who comes into the
shop is a potential customer for us, and in five years
we have gone from producing 6,500 watches per year
to more than 25,000. Over the same period, we have
also launched a tourbillon, a perpetual calendar and
a power reserve. Thanks to this investment across
our entire price range, which is very broad, we have
succeeded in growing.”